Atkore International Group Inc. (Pending:ATKR) priced their IPO of 12 million shares @ $16.00, well below the anticipated range ($20-22), raising $192 million in proceeds. The company will have a market capitalization of approximately $1 billion, and an enterprise value of approximately $1.5 billion. Sponsor CD&R is selling all of the share in the offering and will own approximately 80% of the common stock post offering. Lead underwriters are Credit Suisse, Deutsche Bank, J.P. Morgan, UBS Investment Bank, Citigroup, RBC Capital Markets and Wells Fargo Securities.
Atkore is a leading manufacturer and distribution of galvanized steel tubes and pipes, electrical conduit, armored wire and cable, metal framing systems and building components. 83% of their sales are from products in which they have the #1 or #2 market position. The company is divided into 2 segments: Electrical Raceway, which accounts for approximately 65% of sales and Mechanical Products and Solutions, which represents approximately 35% of sales.
Atkore was purchased by Clayton, Dubilier & Rice in November 2010 from Tyco International in a transaction that was valued at approximately $1 billion. CD&R has performed a significant transformation since 2011, while exiting such segments as Fence and Sprinkler, and improving efficiencies across the core segments. Since 2011, adjusted EBITDA has grown at a 25%+ CAGR from $74 million to $207 million for the last 12 months (end 3/2016), a margin improvement of 800 bps to 13.9%.
Adjusted Net sales have grown from $1.28 billion for fiscal year end 9/27/13 to $1.55 billion for fiscal year end 9/25/15. Adjusted EBITDA over the period has grown from $111 million to $164 million. As of March 25, 2016, cash and equivalents were $134 million and total long term debt was $632 million.
While the offering was said to be oversubscribed earlier in the week, there was some concern regarding valuation. However, the buyside was able to dictate the price on the offering, with indications of interest coming in significantly below the anticipated range. At the $16 price, ATKR is coming at approx 7.4x ttm EV/adjusted EBITDA, while the companies they are using for valuation purposes (US Electrical -including EMR, ETN, PNR, Global electrical -including ABB Ltd, Legrand SA, and Mechanical -including NCS) are currently trading at a median trailing EV/EBITDA of over 10x .
With the significant discount in price, and a reasonable discount to the peers, we expect the company to have a positive day one debut. With a leading market position in the majority of their business segments, and improving Adjusted EBITDA margins, ATKR looks to provide an attractive opportunity, if one can get in near the IPO price. As with all large LBO's expect multiple secondary offerings over the next couple of years as the sponsors cash out of the investment.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ATKR over the next 72 hours.
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